* Dollar retreat, stock gains help CEE fx rise
* Forint, zloty hit 4-week high, crown 2-week high
* PMI's show recovery but deficits, debt supply concern
(Recasts with fresh prices, quotes)
By Marton Dunai and Sandor Peto
BUDAPEST, Jan 4 (Reuters) - East European currencies began
the year stronger on the back of the weaker dollar and improving
domestic manufacturing indices, but high Czech and Slovak budget
deficits overshadowed the outlook.
A retreat of the dollar against the euro <EUR=> and stock
gains indicated a general appetite for risk and fuelled a
continued recovery of the region's currencies from lows a year
ago, dealers said.
"It's all about the dollar today," one Budapest-based dealer
said. "Don't draw conclusions from the rise, there are no bids.
Life will return into the markets (after the year-end holidays)
only by the middle of next week."
Central Europe and stocks joined a broader emerging markets
rally, with the region's key equity indices rising by more than
one percent by late trade. Poland's WIG <> took the lead
with a 2.4 percent rise.
Hungary's forint <EURHUF=> and Poland's zloty <EURPLN=>
stood at four-week highs against the euro by 1505 GMT, having
risen 0.6 and 0.3 percent, respectively, from last year's close.
Romania's leu <EURRON=> gained 0.4 percent and the Czech
crown <EURCZK=>, which hit two-week highs, 0.3 percent.
Looking ahead those currencies may gain more where economic
recovery is quicker and governments' fiscal policy sounder,
dealers and analysts said.
ECONOMIES RECOVER, BUDGETS A RISK
The purchasing manager indices (PMI) of both Poland and the
Czech Republic showed continuing recovery in December. Hungary's
index also rose from November, though it stayed below the
break-even mark. []
But budget deficits remain a key risk in the region which
still grapples with the impacts of the global economic crisis.
The Czech Republic posted a deficit almost five times the
original plan for 2009 [], though the news comes
against a background of sounder fundamentals than regional
peers, Cheuvreux commented in a note.
"This basically sets off the start to the 2010 season of
fiscal issues, which all EU members will have to address,"
Cheuvreux said. "The Czech Republic, with a debt/GDP ratio of 30
percent at end-08... (is) much better placed than others."
Hungary, where public debt stands around 80 percent of GDP,
likely posted a 2009 cash flow based deficit below the targeted
3.8 percent of GDP, Finance Minister Peter Oszko told Reuters on
Monday. []
Investors are watching the fiscal performance of most east
European governments, most of which face elections in 2010 at a
time when budget pressures increase and the lax spending usual
in election years would boost already-high debt.
Hungarian government bonds opened the year stronger, with
yields dropping by about 15 basis points after rises of 70-90
basis points in the last two months of the year.
Hungary's net domestic government bond issuance this year
will remain at levels seen in the last months of 2009, but
higher than last year's average and, as everywhere in the
region, there are risks to budget deficit targets.
"As we expect the (central bank) to reach the bottom of its
cutting cycle by end-1Q10, we think that increased issuance
could push yields higher," Morgan Stanley said in a note.
"In Poland, net T-bond issuance is projected to increase by
30 percent to 52 billion zlotys in 2010," it added. "Our main
concern remains the debt/GDP ratio in Poland, which is pushing
very closely towards the prudential limit of 55 percent."
Polish bonds were flat as debt supply plans announced on
Monday met expectations.[]
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.249 26.334 +0.32% +0.26%
Polish zloty <EURPLN=> 4.092 4.104 +0.29% +0.29%
Hungarian forint <EURHUF=> 268.6 270.19 +0.59% +0.65%
Croatian kuna <EURHRK=> 7.284 7.31 +0.36% +0.35%
Romanian leu <EURRON=> 4.216 4.233 +0.4% +0.51%
Serbian dinar <EURRSD=> 96.53 95.88 -0.67% -0.67%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +43 basis points to 100bps over bmk*
7-yr T-bond CZ7YT=RR -3 basis points to +80bps over bmk*
10-yr T-bond CZ10YT=RR -4 basis points to +58bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -3 basis points to +379bps over bmk*
5-yr T-bond PL5YT=RR +1 basis points to +352bps over bmk*
10-yr T-bond PL10YT=RR +2 basis points to +286bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +3 basis points to +569bps over bmk*
5-yr T-bond HU5YT=RR +1 basis points to +510bps over bmk*
10-yr T-bond HU10YT=RR 0 basis points to +446bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1605 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
(Reporting by Reuters bureaux, Writing by Marton Dunai; Editing
by Ron Askew)
